2022 (8) TMI 1413 - NAPA - GST

Profiteering - purchase Of flats in the Respondent s project Town - it is alleged that the Respondent had not passed on the benefit of ITC to him by way Of commensurate reduction in prices implementation Of GST w.e.f. 01.07.2017 - contravention of provisions of Section 171 of the Central Goods and Services Tax Act 2017 - levy of interest and penalty - HELD THAT - Based on the discussion and the figures of turnover and ITC for the Pre GST Post GST Period there are no reason to differ with the DGAP findings that in the instant project Tinsel Town the additional benefit which accrued to the Respondent in terms of Section 171 of the CGST Act 2017 was 6.52% of the turnover. This benefit was required to be passed on to the recipients; however the same was not done by the Respondent commensurately. The amount of benefit of ITC not passed on to the recipients or in other words the profiteered amount comes to Rs. 2, 03, 03, 720/-. Further. it has been claimed by the Respondent that he had already passed on substantial amount of GST ITC to the homebuyers in accordance with the requirements of Section 171 of the CGST Act 2017 which come out to be Rs. 58, 35, 648/- this fact has also been endorsed by the DGAP and accordingly the profiteering amount which is still required to be passed on comes out to be Rs. 1, 45, 28, 245/-. Interest - HELD THAT - This Authority under Rule 133 (3) (a) of the CGST Rules 2017 orders that the Respondent shall reduce the prices to be realized from the buyers of the flats/Customers commensurate with the benefit of ITC received by him. The Authority directs the Respondent to return/pass on/refund the profiteered amount along with interest as prescribed to each homebuyer/recipient of supply along with interest @ 18% p.a as prescribed from the date the profiteered amount was collected until the date of such return/passing on/refund. The names of such homebuyers along with unit number profiteered amount and the benefit already passed on. Levy of penalty - HELD THAT - The Respondent has denied benefit of TC to the buyers of his flats in contravention of the provisions of Section 171 (1) of the CGST Act 2017 and he had thus resorted to profiteering Hence he has committed an offence for violation of the provisions of Section 171 (1) during the period from 01.07.2017 to 31.03.2019 and therefore appears to be liable for imposition of penalty under the provisions of Section 171 3 (A) of the above Act. However the provisions of Section 171 (3A) have been inserted in the CGST Act 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act 2019 and it was not in operation during the period from 01.17.2017 to 31.03.2019 when the Respondent had committed the violation and hence the penalty under Section 171 (3A) cannot be imposed on the Respondent for such period. Accordingly. notice for imposition of penalty is not required to be issued to the Respondent. The Authority finds that there exists reason to investigate other projects for the purpose of determination of profiteering Accordingly this Authority as per the provisions of Section 171 (2) of the above Act take suo-moto cognizance of the same and in terms of Rule 133(5) of the said Rules directs the DGAP to conduct investigation in respect of the other projects executed under the said registration and submit Report to this Authority for determination whether the Respondent is liable to pass on the benefit of ITC in respect of the other projects/towers to the buyers or not as per the provisions of Section 171 (1) of the above Act. This Order having been passed today falls within the limitation prescribed under Rule 133(1) of the CGST Rules. 2017. Application disposed off.

Summary

Issues Involved:
1. Benefit of additional Input Tax Credit (ITC) not passed on by the Respondent.
2. Violation of Section 171(1) of the CGST Act, 2017.
3. Objections raised by the Respondent regarding methodology, delegation of power, and constitutionality of Section 171.

Detailed Analysis:

I. Benefit of Additional ITC Not Passed On:
The investigation by the Director-General of Anti-profiteering (DGAP) revealed that the Respondent did not pass on the benefit of additional ITC accrued post-GST implementation. The ITC as a percentage of turnover increased from 1.15% in the pre-GST period to 7.67% in the post-GST period, resulting in a net benefit of 6.52%. The DGAP calculated that the Respondent should have passed on Rs. 2,03,03,720/- to the homebuyers but only passed on Rs. 58,35,648/-, leaving a shortfall of Rs. 1,45,28,245/-.

II. Violation of Section 171(1) of the CGST Act, 2017:
Section 171(1) mandates that any reduction in the tax rate or benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices. The Respondent failed to comply with this provision, leading to profiteering. The Respondent's objections regarding the absence of a prescribed methodology for determining profiteering and the delegation of power to frame such methodology were rejected. The Authority clarified that the methodology and procedure were notified under Rule 126 of the CGST Rules, 2017, and each case's unique facts necessitate a tailored approach.

III. Objections Raised by the Respondent:
1. Absence of Methodology: The Respondent argued that no specific methodology was prescribed, leading to arbitrary exercise of powers by DGAP. However, the Authority noted that the methodology was notified under Rule 126 of the CGST Rules, 2017, and the unique facts of each case require a tailored approach.

2. Delegation of Power: The Respondent claimed that the power to determine methodology should not be delegated to the NAA. The Authority countered that the delegation was legal and binding, as it was approved by competent bodies, including the GST Council.

3. Constitutionality of Section 171: The Respondent argued that Section 171 was unconstitutional as it regulated prices, which should be governed by market forces. The Authority clarified that it does not regulate prices but ensures that the benefits of tax reduction and ITC are passed on to consumers.

4. Willful Action: The Respondent contended that profiteering could only be confirmed if benefits were willfully not passed on. The Authority maintained that the provisions of Section 171 are clear and do not require proving mala fide intent.

5. Inclusion of GST in Profiteering Amount: The Respondent objected to the inclusion of GST already paid to the government in the profiteering amount. The Authority clarified that the excess GST collected must be refunded to the recipients or deposited in the Consumer Welfare Fund.

Conclusion:
The Authority concluded that the Respondent had indeed benefited from additional ITC and failed to pass it on to the homebuyers, violating Section 171(1) of the CGST Act, 2017. The Respondent was ordered to refund the profiteered amount of Rs. 1,45,28,245/- along with interest at 18% per annum to the homebuyers. The concerned jurisdictional CGST/SGST Commissioner was directed to ensure compliance and submit a report within four months. The Authority also directed DGAP to investigate other projects under the same GST registration for similar violations.